sgh-10q_20200529.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 29, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-38102

 

SMART GLOBAL HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Cayman Islands

98-1013909

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

c/o Maples Corporate Services Limited

P.O. Box 309

Ugland House

Grand Cayman, Cayman Islands

KY1-1104

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (510) 623-1231

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Ordinary shares, $0.03 par value per share

SGH

The NASDAQ Stock Market LLC

(NASDAQ Global Select Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of June 24, 2020, the registrant had 24,159,314 ordinary shares outstanding.

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

3

Item 1.

Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Income Statements

4

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

5

 

Condensed Consolidated Statements of Equity

6

 

Condensed Consolidated Statements of Cash Flows

8

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

42

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

47

Item 4.

Controls and Procedures

47

PART II.

OTHER INFORMATION

49

Item 1.

Legal Proceedings

49

Item 1A.

Risk Factors

49

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

55

Item 3.

Defaults Upon Senior Securities

55

Item 4.

Mine Safety Disclosures

55

Item 6.

Exhibits

56

Signatures

57

 

 

 

1


 

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve many risks and uncertainties. Forward-looking statements are identified by the use of the words “would,” “could,” “will,” “may,” “expect,” “believe,” “should,” “anticipate,” “if,” “future,” “intend,” “plan,” “estimate,” “potential,” “target,” “seek,” or “continue” and similar words and phrases, including the negatives of these terms, or other variations of these terms, that denote future events. These statements reflect our current views with respect to future events and our potential financial performance and are subject to risks and uncertainties that could cause our actual results and financial position to differ materially and adversely from what is projected or implied in any forward-looking statements included in this report. These factors include, but are not limited to, the risks described under the caption “Risk Factors” in the documents we file from time to time with the Securities and Exchange Commission, including in our Annual Report on Form 10-K for our fiscal year ended August 30, 2019, and in this report, and in Item 2 of Part I – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We make these forward-looking statements based upon information available on the date of this report, and we expressly disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information or otherwise, except as required by law.

 

 

2


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

SMART Global Holdings, Inc.

and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

 

 

 

May 29,

 

 

August 30,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

131,845

 

 

$

98,139

 

Accounts receivable, net of allowances of $217 and $184 as of May 29, 2020

   and August 30, 2019, respectively

 

 

223,211

 

 

 

217,433

 

Inventories

 

 

180,554

 

 

 

118,738

 

Prepaid expenses and other current assets

 

 

31,496

 

 

 

37,950

 

Total current assets

 

 

567,106

 

 

 

472,260

 

Property and equipment, net

 

 

53,760

 

 

 

68,345

 

Operating lease right-of-use assets

 

 

26,289

 

 

 

 

Other noncurrent assets

 

 

12,609

 

 

 

12,784

 

Intangible assets, net

 

 

59,085

 

 

 

69,325

 

Goodwill

 

 

73,451

 

 

 

81,423

 

Total assets

 

$

792,300

 

 

$

704,137

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

245,774

 

 

$

164,866

 

Accrued liabilities

 

 

59,878

 

 

 

48,980

 

Current portion of long-term debt

 

 

608

 

 

 

24,054

 

Total current liabilities

 

 

306,260

 

 

 

237,900

 

Long-term debt

 

 

193,547

 

 

 

182,450

 

Long-term operating lease liabilities

 

 

21,847

 

 

 

 

Other long-term liabilities

 

 

6,127

 

 

 

10,327

 

Total liabilities

 

$

527,781

 

 

$

430,677

 

Commitments and contingencies (see Note 10)

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Ordinary shares, $0.03 par value. Authorized 200,000 shares; issued and

   outstanding 24,144 and 23,617 as of May 29, 2020 and August 30, 2019,

   respectively

 

 

728

 

 

 

712

 

Additional paid-in capital

 

 

342,476

 

 

 

285,994

 

Accumulated other comprehensive loss

 

 

(234,634

)

 

 

(177,866

)

Retained earnings

 

 

155,949

 

 

 

164,620

 

Total shareholders’ equity

 

 

264,519

 

 

 

273,460

 

Total liabilities and shareholders’ equity

 

$

792,300

 

 

$

704,137

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

3


 

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Income Statements

(In thousands, except per share data)

(Unaudited)

 

  

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

May 29,

 

 

May 31,

 

 

May 29,

 

 

May 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net sales (1)

 

$

281,287

 

 

$

235,657

 

 

$

825,347

 

 

$

933,599

 

Cost of sales

 

 

227,054

 

 

 

192,622

 

 

 

665,288

 

 

 

748,364

 

Gross profit

 

 

54,233

 

 

 

43,035

 

 

 

160,059

 

 

 

185,235

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

14,436

 

 

 

11,330

 

 

 

44,023

 

 

 

34,384

 

Selling, general, and administrative

 

 

29,733

 

 

 

24,306

 

 

 

91,935

 

 

 

73,202

 

Total operating expenses

 

 

44,169

 

 

 

35,636

 

 

 

135,958

 

 

 

107,586

 

Income from operations

 

 

10,064

 

 

 

7,399

 

 

 

24,101

 

 

 

77,649

 

Interest expense, net

 

 

(3,094

)

 

 

(5,001

)

 

 

(11,736

)

 

 

(16,149

)

Other income (expense), net

 

 

(3,445

)

 

 

97

 

 

 

(16,671

)

 

 

(2,980

)

Total other expense

 

 

(6,539

)

 

 

(4,904

)

 

 

(28,407

)

 

 

(19,129

)

Income (loss) before income taxes

 

 

3,525

 

 

 

2,495

 

 

 

(4,306

)

 

 

58,520

 

Provision for income taxes

 

 

2,700

 

 

 

550

 

 

 

4,365

 

 

 

12,813

 

Net income (loss)

 

$

825

 

 

$

1,945

 

 

$

(8,671

)

 

$

45,707

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.03

 

 

$

0.08

 

 

$

(0.36

)

 

$

2.00

 

Diluted

 

$

0.03

 

 

$

0.08

 

 

$

(0.36

)

 

$

1.96

 

Shares used in computing earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

24,066

 

 

 

23,005

 

 

 

23,895

 

 

 

22,824

 

Diluted

 

 

24,431

 

 

 

23,330

 

 

 

23,895

 

 

 

23,374

 

 

(1)

Includes sales to affiliates of $24,139 and $59,691 in the three and nine months ended May 29, 2020, respectively, and $26,427 and $94,641 for the same periods ended May 31, 2019, respectively (see Note 3).

See accompanying notes to unaudited condensed consolidated financial statements.

4


 

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

May 29,

 

 

May 31,

 

 

May 29,

 

 

May 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income (loss)

 

$

825

 

 

$

1,945

 

 

$

(8,671

)

 

$

45,707

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

(35,752

)

 

 

(16,209

)

 

 

(56,768

)

 

 

(10,268

)

Comprehensive income (loss)

 

$

(34,927

)

 

$

(14,264

)

 

$

(65,439

)

 

$

35,439

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

5


 

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Equity

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

other

 

 

 

 

 

 

Total

 

 

 

Ordinary shares

 

 

paid-in

 

 

comprehensive

 

 

Retained

 

 

shareholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

earnings

 

 

equity

 

Balances as of August 31, 2018

 

 

22,480

 

 

$

678

 

 

$

250,191

 

 

$

(175,995

)

 

$

112,254

 

 

$

187,128

 

Share-based compensation expense

 

 

 

 

 

 

 

 

4,055

 

 

 

 

 

 

 

 

 

4,055

 

Issuance of ordinary shares from exercises

 

 

210

 

 

 

6

 

 

 

2,396

 

 

 

 

 

 

 

 

 

2,402

 

Issuance of ordinary shares from release of

   restricted stock units (RSUs)

 

 

55

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Issuance of ordinary shares from employee share

   purchase plan (ESPP)

 

 

36

 

 

 

1

 

 

 

967

 

 

 

 

 

 

 

 

 

968

 

Effect of adopting ASC 606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,034

 

 

 

1,034

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

3,102

 

 

 

 

 

 

3,102

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,976

 

 

 

30,976

 

Balances as of November 30, 2018

 

 

22,781

 

 

 

687

 

 

 

257,607

 

 

 

(172,893

)

 

 

144,264

 

 

 

229,665

 

Share-based compensation expense

 

 

 

 

 

 

 

 

4,148

 

 

 

 

 

 

 

 

 

4,148

 

Issuance of ordinary shares from exercises

 

 

87

 

 

 

3

 

 

 

1,068

 

 

 

 

 

 

 

 

 

1,071

 

Issuance of ordinary shares from release of RSUs

 

 

67

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Withholding tax on RSUs

 

 

(8

)

 

 

 

 

 

(219

)

 

 

 

 

 

 

 

 

(219

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

2,839

 

 

 

 

 

 

2,839

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,786

 

 

 

12,786

 

Balances as of March 1, 2019

 

 

22,927

 

 

 

691

 

 

 

262,603

 

 

 

(170,054

)

 

 

157,050

 

 

 

250,290

 

Share-based compensation expense

 

 

 

 

 

 

 

 

4,433

 

 

 

 

 

 

 

 

 

4,433

 

Issuance of ordinary shares from exercises

 

 

28

 

 

 

1

 

 

 

296

 

 

 

 

 

 

 

 

 

297

 

Issuance of ordinary shares from release of RSUs

 

 

52

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Withholding tax on RSUs

 

 

 

 

 

 

 

 

(11

)

 

 

 

 

 

 

 

 

(11

)

Issuance of ordinary shares from ESPP

 

 

74

 

 

 

2

 

 

 

1,333

 

 

 

 

 

 

 

 

 

1,335

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

(16,209

)

 

 

 

 

 

(16,209

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,945

 

 

 

1,945

 

Balances as of May 31, 2019

 

 

23,081

 

 

$

696

 

 

$

268,652

 

 

$

(186,263

)

 

$

158,995

 

 

$

242,080

 

 

6


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

other

 

 

 

 

 

 

Total

 

 

 

Ordinary shares

 

 

paid-in

 

 

comprehensive

 

 

Retained

 

 

shareholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

earnings

 

 

equity

 

Balances as of August 30, 2019

 

 

23,617

 

 

$

712

 

 

$

285,994

 

 

$

(177,866

)

 

$

164,620

 

 

$

273,460

 

Share-based compensation expense

 

 

 

 

 

 

 

 

5,956

 

 

 

 

 

 

 

 

 

5,956

 

Issuance of ordinary shares from exercises

 

 

86

 

 

 

2

 

 

 

1,164

 

 

 

 

 

 

 

 

 

1,166

 

Issuance of ordinary shares from release of RSUs

 

 

69

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Issuance of ordinary shares from ESPP

 

 

67

 

 

 

2

 

 

 

1,240

 

 

 

 

 

 

 

 

 

1,242

 

Withholding tax on RSUs

 

 

(1

)

 

 

 

 

 

(20

)

 

 

 

 

 

 

 

 

(20

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

(10,244

)

 

 

 

 

 

(10,244

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

224

 

 

 

224

 

Balances as of November 29, 2019

 

 

23,838

 

 

 

718

 

 

 

294,332

 

 

 

(188,110

)

 

 

164,844

 

 

 

271,784

 

Share-based compensation expense

 

 

 

 

 

 

 

 

4,647

 

 

 

 

 

 

 

 

 

4,647

 

Issuance of ordinary shares from exercises

 

 

49

 

 

 

1

 

 

 

640

 

 

 

 

 

 

 

 

 

641

 

Issuance of ordinary shares from release of RSUs

 

 

117

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

Withholding tax on RSUs

 

 

(11

)

 

 

 

 

 

(351

)

 

 

 

 

 

 

 

 

(351

)

Equity component of convertible notes due 2026, net

 

 

 

 

 

 

 

 

50,822

 

 

 

 

 

 

 

 

 

50,822

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

(10,772

)

 

 

 

 

 

(10,772

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,720

)

 

 

(9,720

)

Balances as of February 28, 2020

 

 

23,993

 

 

 

723

 

 

 

350,086

 

 

 

(198,882

)

 

 

155,124

 

 

 

307,051

 

Share-based compensation expense

 

 

 

 

 

 

 

 

4,907

 

 

 

 

 

 

 

 

 

4,907

 

Issuance of ordinary shares from exercises

 

 

9

 

 

 

 

 

 

134

 

 

 

 

 

 

 

 

 

134

 

Issuance of ordinary shares from release of RSUs

 

 

64

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Withholding tax on RSUs

 

 

(12

)

 

 

 

 

 

(282

)

 

 

 

 

 

 

 

 

(282

)

Issuance of ordinary shares from ESPP

 

 

90

 

 

 

3

 

 

 

1,739

 

 

 

 

 

 

 

 

 

1,742

 

Reclassification of capped call upon modification of

   articles of association  (See Note 7)

 

 

 

 

 

 

 

 

(14,106

)

 

 

 

 

 

 

 

 

(14,106

)

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

(35,752

)

 

 

 

 

 

(35,752

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

825

 

 

 

825

 

Balances as of May 29, 2020

 

 

24,144

 

 

$

728

 

 

$

342,476

 

 

$

(234,634

)

 

$

155,949

 

 

$

264,519

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

7


 

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

May 29,

 

 

May 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(8,671

)

 

$

45,707

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

27,797

 

 

 

20,152

 

Share-based compensation

 

 

15,510

 

 

 

12,636

 

Provision for doubtful accounts receivable and sales returns

 

 

47

 

 

 

(24

)

Deferred income tax benefit

 

 

65

 

 

 

430

 

(Gain) Loss on disposal of property and equipment

 

 

(19

)

 

 

21

 

Loss on mark-to-market adjustment of the capped call

 

 

7,719

 

 

 

 

Loss on extinguishment of debt / revolver

 

 

6,822

 

 

 

 

Amortization of debt discounts and issuance costs

 

 

3,786

 

 

 

2,085

 

Amortization of operating lease right-of-use assets

 

 

3,569

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(17,885

)

 

 

7,658

 

Inventories

 

 

(72,481

)

 

 

82,771

 

Prepaid expenses and other assets

 

 

(1,119

)

 

 

1,787

 

Accounts payable

 

 

95,687

 

 

 

(44,885

)

Operating lease liabilities

 

 

(3,503

)

 

 

 

Accrued expenses and other liabilities

 

 

4,903

 

 

 

(7,622

)

Net cash provided by operating activities

 

 

62,227

 

 

 

120,716

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures and deposits on equipment

 

 

(16,889

)

 

 

(30,112

)

Proceeds from sale of property and equipment

 

 

154

 

 

 

71

 

Acquisition of business, net of cash acquired

 

 

 

 

 

(148

)

Net cash used in investing activities

 

 

(16,735

)

 

 

(30,189

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Long-term debt payments - Term Loan

 

 

(5,625

)

 

 

 

Long-term debt payments - BNDES

 

 

(2,292

)

 

 

(5,073

)

Purchase of capped call